Excerpt:.....in contravention of section 11(2) of the companies act, 1956. the ito also noticed that the deed of partnership was not signed by the guardians of the minors.therefore, after relying upon the decision of the allahabad high court in addl. cit v. uttam kumar promod kumar [1974] 97 itr 730, he cancelled the registration.4. the assessee, being aggrieved, came up in appeal before the commissioner (appeals). the learned commissioner (appeals) took the view that the word "person" includes a minor under the income-tax act as well as under the partnership act, 1932, though it is not defined under the companies act, 1956. he was also influenced by the fact that the definition of "partner" under section 2(23) of the act includes a minor admitted to the benefits of partnership. he, therefore,.....

Judgment: 1. These two appeals arise out of the consolidated order dated 31-1-1981 of the Commissioner (Appeals) II, Kanpur, for the assessment-years 1966-67 and 1967-68.

2. Both these appeals were filed after a delay of 13 days and 25 days, respectively. It was pointed out by Shri A.C. Sinha, the learned counsel for the assessee, that the impugned orders were served on the assessee on 13-2-1981 and that the appeals were despatched by registered post on 7-4-1981 but were received in the office of the Tribunal only on 27-4-1981 and that, therefore, the delays being postal, were entitled to be condoned. The delays being for reasonable period, are condoned.

3. The assessee-firm was constituted vide partnership deed dated 12-10-1965 with 17 major partners and 4 minors were admitted to the benefits of partnership. The registration was originally granted to the assessee on 27-3-1971. However, it was cancelled by the ITO under Section 186(1) of the Income-tax Act, 1961 ("the Act"), on the ground that the firm was constituted of more than 20 persons in contravention of Section 11(2) of the Companies Act, 1956. The ITO also noticed that the deed of partnership was not signed by the guardians of the minors.

Therefore, after relying upon the decision of the Allahabad High Court in Addl. CIT v. Uttam Kumar Promod Kumar [1974] 97 ITR 730, he cancelled the registration.

4. The assessee, being aggrieved, came up in appeal before the Commissioner (Appeals). The learned Commissioner (Appeals) took the view that the word "person" includes a minor under the Income-tax Act as well as under the Partnership Act, 1932, though it is not defined under the Companies Act, 1956. He was also influenced by the fact that the definition of "partner" under Section 2(23) of the Act includes a minor admitted to the benefits of partnership. He, therefore, upheld the order of the ITO. Thus, he held that the partnership in this case was of 21 persons and was, therefore, violative of the provisions of Section 11(2) of the Companies Act, and, therefore, the cancellation of the registration under Section 186(1) was justified. However, he did not accept the other ground on which cancellation of registration had been sustained by the ITO, namely, the want of signatures of the guardians of the minors on the deed of partnership. In this connection he placed reliance on the CBDT's Circular No. 210/13/74-IT(A-II) [Instruction No. 938], dated 19-3-1976. On the basis of the said circular, he took the view that an opportunity may be given to the assessee to amend the partnership deed but the registration need not be refused on this ground.

5. The assessee, being aggrieved, is in appeal before us. Shri A.C.Sinha, the learned counsel for the assessee, submitted that 4 minors admitted to the benefits of partnership could not be included in the total number of partners for the purposes of Section 11(2) of the Companies Act. He also submitted that the minors could also not be included in the total number of partners constituting a firm under the provisions of the Indian Partnership Act, 1932. In this connection he placed reliance on the definition of "partner" under the Income-tax Act, as well as under the Partnership Act, 1932. He pointed out that the firm had been duly registered with the Registrar of Firms, UP, in terms of Section 58 of the Partnership Act. He referred to the decision of the Supreme Court in CIT v. Dwarka Das Khetan & Co. [1961] 41 ITR 528, for the proposition that in view of Section 30 of the Partnership Act, a minor cannot become a partner though with the consent of the adult partners, he may be admitted to the benefits of partnership. He referred to another decision of the Supreme Court in Agrawal & Co. v.C777 [1970] 77 ITR 10 for the proposition that the definition of "person" under the Income-tax Act could not be imported into the Partnership Act, and it is the Partnership Act alone which is relevant for finding out as to who can join as partners for the purposes of the Partnership Act. Next he referred to the decision of the Allahabad High Court in Satya Narain v. Jugul Kishore AIR 1958 All. 512 for the proposition that a person who is a minor cannot be a member of a firm.

Lastly, he referred to the order dated 29-5-1981 of the Cochin Bench of this Tribunal in the case of ITO v. Chandrika Enterprises [1981] 7 Taxman 75 in which it was held that a minor admitted to the benefits of partnership cannot be taken into account for determining whether or not the limit of 20, provided in Section 11(2) of the Companies Act, has been exceeded. He, therefore, argued that the order of the learned Commissioner (Appeals) was not correct. On the other hand, Shri R.K.Upadhyay, the learned departmental representative, placed strong reliance on the orders of the income-tax authorities so far as the first ground is concerned. He also pointed out that the Commissioner (Appeals) was not right in taking the view that for want of signature of the guardians of the minors on the partnership deed, the genuineness of the partnership could not be questioned and that the ITO should be directed to give an opportunity to the assessee to amend the partnership deed in that regard. In this connection he placed reliance on the decision of the Allahabad High Court in the case of Uttam Kumar Promod Kumar (supra).

6. We have considered the rival submissions. The copy of the partnership deed has not been placed before us. In the case of Uttam.

Kumar Promod Kumar (supra), the minors had not signed the partnership deed, nor had anybody acted on their behalf. It was also found that the minors were given the right of participation in the business of the partnership like the major partners, and the minors were made liable for losses of the partnership. The Court also found that the terms of the partnership deed were such that they purported to make the minors full-fledged partners and not only conferred on them the benefits of partnership. It was, therefore, held that the partnership was not entitled to registration. The facts in the present case are not the same as the facts in the above case. We have gone through the circular which is on the file of the Commissioner (Appeals). That circular was issued particularly in the light of the aforesaid decision in the case of Uttam Kumar Promod Kumar (supra), para 5 of that circular is to the following effect : The Board have also decided that in so far as pending assessments are concerned, an opportunity may be given to amend the partnership deed and if done so, the registration will not be refused on this ground.

The circular of the Board was in favour of the assessee and, therefore, the assessee would be entitled to insist that it should be followed by the income-tax authorities. In the cases Navnit Lal C. Javeri v. K.K.Sen, A AC [1965] 59 ITR 198 and in Ellennan Lines Ltd. v. CIT [1971] S2 ITR 913, the Supreme Court accepted the validity and binding nature of such beneficent circulars and recognised the taxpayers' rights to enforce them in this favour even in the Court. The Commissioner (Appeals) has pointed out that in that circular, the Board has directed that an opportunity may be given to the assessee to amend the partnership deed and that registration need not be refused on this ground. In view of the above, we are of the view that the Commissioner (Appeals) was quite justified in taking this view.

7. So far as the other point is concerned, Sections 11(2) and (3) of the Companies Act are in the following terms : (2) No company, association or partnership consisting of more than 20 persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian law.

(3) This section shall not apply to a joint family as such carrying on a business ; and where a business is carried on by two or more joint families, in computing the number of persons for the purposes of Sub-sections (1) and (2), minor members of such families shall be excluded.

The expression "person" has not been defined under the Companies Act, 1956. A combined reading of Sub-sections (2) and (3) of Section 11 aforesaid suggested that minors would not be included in the figure of 20 persons. No doubt, the expression "person" has been defined under Section 2(31) of the Act, as including an individual and the "individual", would include a minor as also held by the Allahabad High Court in Dhar Udai Narayan v. CIT [1962] 45 ITR 577. However, since the Companies Act, 1956, is a central enactment, the expressions not defined therein would have to be interpreted with reference to the General Clauses Act, 1897, and that Act defines "person" as including any company or association or body of individuals whether incorporated or not. This definition is also inclusive and, therefore, does not specifically assist us. However, the number of persons referred to in Section 11(2) are in the context of company, association or partnership. Since we are considering a partnership in the present case, we have to construe the expression with reference to a partnership. Section 4 of the Partnership Act, defines partnership as a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all Persons who have entered into partnership with one and another are individuals called "partners" and collectively "a firm" and the name in which the business is carried on is called the "firm name". Further Section 30 of this Act provides that a person who is a "minor according to the law to which he is subject, may not be a partner in a firm but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership". Since partnership is the result of an agreement, a minor cannot be a partner nor can he be included in the number of persons who are said to constitute a partnership. This is also clear from Section 11 of the Contract Act, 1872, in terms of which a minor is not competent to contract. The same position has been recognised in Section 30 of the Partnership Act, referred to above. The context in which a minor is treated as a "person" under the Income-tax Act, is different from the context in which a minor is to be treated for purposes of the Partnership Act, and Section 11 of the Companies Act. In this case, the provision which is the subject-matter of interpretation is not under the Income-tax Act, but Section 11 of the Companies Act. The decisions relied upon on behalf of the assessee also point to the same conclusion. These arguments were also considered by the Cochin Bench of this Tribunal in the case of Chandrika Enterprises (supra), referred to on behalf of the assessee, and we are in respectful agreement with the said view. Accordingly, we are of the view that the income-tax authorities were not justified in holding that 4 minors admitted to she benefits of the partnership should be token into account for determining whether or not the limit of 20 persons provided in Section 11(2) of the Companies Act, has been exceeded, and in thereby holding that the registration of the partnership firm deserved to be cancelled under Section 186(1). In view of the above, the matter will now go back to the ITO in the light of the view expressed by the Commissioner (Appeals) (and which we uphold) to the effect that an opportunity shall be afforded to the assessee to have the partnership deed amended in accordance with law to provide for the signature of the guardians of the minors admitted to the benefits of partnership.

8. In the result, the appeals filed by the assessee are allowed in the light of our above observations.